The telecom sector which is already under pressure due to new entrant Reliance Jio promotional offers is now going to face another crisis as Goods and Services Tax (GST) Council has finalized 18 percent tax rate on telecom services, which is three percentage points higher than the current 15 percent services tax.
The sector is also disappointed with announced rate of 18 percent.
"We had submitted to the govt that consideration must be given to the present financial condition of the sector and any rate beyond the existing rate of 15 percent makes the telecom services more expensive for the consumer. It will augment the existing burden of the industry further. This is also likely slow down the planned rollout of infrastructure across the country and will have an impact on flagship govt initiatives like Digital India, Cashless India, and others," said Rajan S Mathews, Director General, COAI.
He said it is noteworthy here that the telecom sector pays around 30 percent of its earnings in taxes and levies, including spectrum usage charge and license fees. Due to a number of reasons, including hyper-competitiveness, the sector has come to a point that can be seen as just short of needing a bail-out. Total debt for the sector is at around Rs 4.5 lakh crore, while revenues are around than half this. Despite this, tariffs have been going in the opposite direction of inflation.
"As an essential service, the telecom industry needs some benefits and tax relaxation in order to provide a seamless and hassle-free service. The industry has worked tirelessly and has fulfilled its motto of connecting everyone till the last mile connectivity," Mathews added.
Similarly, Uday Pimprikar, Tax Partner, EY India said that "Imposing 18 percent tax on telecom is likely to increase the overall tax burden and therefore may have a negative impact on the consumers' expenses. It needs to be appreciated that telecom is a necessity and an extremely important infrastructure service & resource and thus deserves more sensitive treatment."